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My Mailbox. Index funds vs ETFs: Simon Brown – JustOneLap

Satrix Divi, Nedbank BettaBeta, OneLogix.

HILTON TARRANT: This is My Mailbox this Friday evening. Simon Brown of JustOneLap is with us. We are taking your SMSes this evening. Two are already through with us in the studio – 34701, with the keyword “market” at a cost of R2 per SMS.
     First off, index funds, exchange-traded funds – the one’s a unit trust, the other is not. What the difference?

SIMON BROWN: In essence, very little. They both fall under collective investment schemes. They both are going to be tracking an index in a sense, they are both going to be probably doing it at a very low cost.
   Exchange-traded funds came in in the early part of this century; I think in November 2000 was the first one. Unit trusts have been around for 60 years. The difference that you are probably going to get is they are different in what they track. In other words, what is that underlying benchmark? Isis it a Top 40, or perhaps an IT or something like that? Otherwise broadly they are pretty much the same, and should both be low cost.

HILTON TARRANT: Lunga in Port Elizabeth, sticking with the ETF theme, asks about the Satrix Divi and asks could you elaborate on it. He’d like to invest in it. I’ve looked at the chart here – it’s gone pretty much nowhere for the past year.

SIMON BROWN: Yeah, it hasn’t been a  huge performer in recent times. It’s one of my two preferred exchange-traded funds in the general equity space. What they do is they take the 100 largest shares on the JSE, rank them by future and historic dividend yield, and by the top 30 and the dividend yield. One initially thought that was going to give you a great dividend payout. It doesn’t. It gives about a 2% or so dividend yield. What it does mean is that you are almost doing contrarian – so you are buying stocks that have fallen, in a sense. Telkom was in there for awhile. It isn’t any more. African Bank unfortunately is probably in there. But you are almost getting contrarian in a sense where the other indices are all broadly the same with their market cap weighted. So you are really getting the sort of momentum trading rather than the contrarian. It’s one of my two preferred.
    My other preferred is the Nedbank BettaBeta, which is an equal weighted. It takes the Top 40, and divides each stock equally among them.

HILTON TARRANT: Andre asks about OneLogix. Your views long term?

SIMON BROWN: I like the business intuitively. It’s in logistics. They’ve got some good operations. They are basically moving cars around and large trucks, if you go and see those vehicles in the road with six or eight cars stacked on the back. That’s what they are doing. They are also taking it into Africa. They are clever with how they offset the petrol price. They just pass it straight on to the end user. They’ve got PostNet, PostNet being a bit of a disappointment, which has surprised. But their core business, which is the moving of vehicles, is a great business. Of course we need vehicle sales to be doing something to really make a significant difference there. They are moving into more logistics, bulk tanker liquid and the like. I think it’s a good little business.

HILTON TARRANT: Thanks to Simon Brown. One question in – we’ll get to that, 43 years old, starting with a RA two years before that. We’ll get to that question in My Mailbox next week.

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